Small Cap Value Report (Fri 14 Feb 2020) - TRI, INDV,

14th Feb '20 by Paul Scott

38 comments 8003 reads

Good morning, it's Paul here with Friday's SCVR.

It's quiet for results/TUs today, so I'll circle back to a couple of stragglers that I didn't have time to look at earlier this week.

Estimated time of completion is 1pm

Edit at 12:26 - today's report is now finished.

I'm pleased to see that Elon Musk has followed up on my suggestion, to take advantage of the crazy rise in share price at $TSLA to do a fundraising of c.$2bn. Apparently this is a fortnight after he had confirmed that there wasn't going to be a fundraising. He gets away with murder, doesn't he! Anyway, it's most pleasing to note that he obviously reads the SCVR ;-)

This is a point worth emphasising actually, about fundraisings in times of share price strength. Any company that has a soaring share price, and a stretched valuation, should take advantage of that to do a top-up fundraising. Bull markets present a golden opportunity to fix balance sheets, pay off debt, and protect a business in advance of the next recession.

Yet hardly any management teams seem to anticipate the economic cycle. This is very strange. Why is it, that in the sphere of finance/economics, humans keep making the same mistakes without learning from them? Despite events following very clear cycles - both in terms of the stock market, and the economy as a whole.

Conditions now are looking increasingly similar to the boom conditions in 1998-99, and 2006-7. In both those times, I remember stock market valuations becoming very high, especially for growth companies. Optimism seemed boundless, people who warned about trouble ahead were ignored (because they had been consistently wrong for at least 5 years, so people stopped listening - even though we all knew that we were in a bubble!). Corporates and individuals were borrowing too much, leading to inflated asset prices, over-investment, and over-consumption.

Then something happens to prick the bubble, and economies slide into recession, stock markets tumble, and lenders start withdrawing credit.

I can't help feeling that we're nearing the end of this current bull cycle. Maybe another year or two before it all blows up? It feels like that to me.

Trifast (LON:TRI)

Share price: 166p (down 4%, at 08:36)
No. shares: 123.9m
Market cap: 205.7m

Trading update (mild profit warning)

International specialist in the design, engineering, manufacture and…

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Edmund Shing

14th Feb '20

Errr Ambrosia, if you look at the company news on Air Partner (LON:AIR), you will see the profit warning issued on Jan 22... The trigger for the share price fall. Ed

Tortoise investor

As Paul reminded me yesterday in my schoolboy error post, the low share price means even a volume of 5 million (as of 1pm today) is actually still only about £25,000.

ps. although I think this could be a nice turnaround story, I am a little worried in the immediate term that they might be hit by Coronavirus in terms of overseas students/learners needing to travel to the UK.

aflash

There is an interesting discussion of INDV (Individor) here:

https://www.stockopedia.com/content/what-are-your-golden-rules-552576?order=createdAt&sort=desc&mode=threaded

but as this is the forum with the most reads let us try to shake out some comment from the 'heavy hitters' about anchoring.

The author ends with: It is also poor logic to wait for a share to recover back to the price you paid for it. That price is only significant to one person (you) and is the classic psychological mistake of “anchoring”. This is worthy of a whole post in itself.

For the same of argument I suggest anchoring can be useful for buying and selling relative to the price you previously paid.

In 2019 I Sold INDV ,517 having Bot at ,45. In 2018 at ,97 having Bot at ,84 and earlier that year Sold 2,18 Bot 1,76. So at the present price it looks interesting. Respected poster Cisk makes the point cash-debt=mrkt cap.

However reading Note 12, as suggested by Paul, prevents me purchasing until the lowest recent prices recur, below 30p.

Another share in the news AIR (Air Partner) has just rejoined my portfolio at 74p.

2019 Sold ,97 Bot ,83.

Sure News changes but Prices have Memory.

Discuss.

Devlishcunning

'As Warren Buffett points out all boats rise on a tide.'

Only half the time.

In my experience boats do NOT rise on an ebb tide, only on an incoming tide.

InvestorJohn

Yes you have to use Stockopedia to find the hidden Gems that are either still good value or have a strong competitive advantage.

So as a starting point I would recommend you find out/read about

Operating Margins
ROCE
PE/PEG
Look for growing revenues

You can use the Screens under the Browse tab to screen for various criteria

mojomogoz

People don't die of old age either...but it is ageing that heralds death and when very old is highly predictive.

Markets are always a riot of narrative fallacies. All is clear ex post. But just like with people, bull market age is a good probabilistic indicator the older it gets and the energy of price outruns the vitality of profits.

My guess is that hopes for a continued global bull market now rest on a weakening dollar (and its been strengthening) and a shift in this chart (for Asia too):

5e46a868294aeScreen_Shot_2020-02-14_at_1

If these two things happen then the stale ageing US bull market where valuations are clearly stretched relative to profit vitality can allow other to lead. Here's an age related US chart:

5e46a8f14ca9aScreen_Shot_2020-02-14_at_1

Now, I do think the bull will run due to fiscal policy and debt monetisation....but there will be a very choppy interlude before that happens.

fwyburd

Hi Patrick,

I agree that the value of trades is low but my point was that the volume of shares traded is disproportionately high over the last two days, relative to other days.

cheers

Francis

Howard Marx

"A rising tide floats all boats….. only when the tide goes out do you discover who’s been swimming naked."

Warren Buffett

Stocks123456

I don't see how Malvern International (LON:MLVN) can go much lower. Its EV is about a quarter of that of Wey Education (LON:WEY) but with higher revenues. One of the two is incorrect!

Otemple3

Add £phe to that list too

Snoo

The trouble for me is the loan they have taken out.... very expensive. Does anyone know the terms and conditions they alluded to in the last trading statement?

It seems a given that there may be a profit warning for this year due to a reduction of travelling students from South East Asia.

With the size of the loan relative to the market cap, it could be a case that existing shareholders could be squeezed out if things went bad.

Apocryphal Now

I'm as confused about the sudden drop as I was about the recent surge. As recently as late November, Good Energy (LON:GOOD) were around £1.50 per share. I couldn't work out what had prompted the price to rise to around £2.40. The current price compared with November's doesn't look quite so bad...

Cisk

Thanks for the shoutout aflash - unfortunately I broke one of my rules and duly bought some £INVD - then to sell a few days later on a thumping % loss! Thankfully I only put in a tiny amount...

Should have researched further of course and not bought on instinct - when does one ever make money from that?!

If the legal case is won / settled then I’m sure the shares will rocket, but as Paul says, it’s a huge cloud to be operating under. My guess is that they will settle - but at what price?

One strategy I’ve been using more of recently is to buy back stock I’ve held in the past, whose price has bombed out (and in many cases I lost money on previously). After all, if you’ve already done the research and still like the company, why not, if the fundamental reasons you bought in the first place remain the same?

Animalcare (LON:ANCR) and Avacta (LON:AVCT) fall into that category for me. I’ve not bet the farm on either, as both are high risk, but they seem to be turning the corner, although with Avacta (LON:AVCT) there’s more hot air which has yet to be turned into movement...

bbeatty

One problem Paul. They do not supply Northern Ireland. Ah well!!

Hi Snoo

Where did you get that information about a reduction in travelling students from SE Asia? Thanks

smatthews1

I think thats a great strategy cisk, I personally do something similar myself. my watch list consists of about 50-60 stocks all of which I "try" to take notes on and build up a clear picture over time until a buying opportunity presents itself.

Nothing official....just a guess. It's pretty difficult to get a flight from China to here for the foreseeable future. British Airways have gone down to one flight a day from HK, because of bad load factors.

I don't mean the official student type at university (whom might have been back already), more those that might come over for vocational courses that Malvern offer.

Maybe it might not be too bad? I don't think Malvern give a breakdown but their recent acquisition Communicate English do, average age 27, Chinese only make up 2%.

15th Feb '20

I also like low / no debt and growing dividends (not necessarily a high dividend rate, but growing).

Sadiayusuf, you’re right to be cautious - don’t know how long you’ve been investing but I remember the dot com boom well enough, and there are certainly parallels between then and now.

Personally I wouldn’t be buying amazon, apple and the like but who knows how far momentum will take them. Tesla is another story and imho is crazily overvalued, but hey, that’s never stopped a stock from advancing!

Luckily the UK seems cheaper compared to US, but of course will still plummet if the Dow does.

As long as you don’t need the money in a hurry you can afford to ride out the inevitable storms and focus on good quality companies at decent prices - and this is a great place to look for them!

hayashi22

Yes another 'mistake' is not to double up when you a really good idea. I have money in around 4 places...would make sense to use cash in each place to buy stock in these top naps.
As an aside I have gone into an area quite aggressively for just about the first time..pharma/life science. Stock ranks is great but less useful in this space so it doesn't rea/ly bother me say that Avacta (LON:AVCT) is described as a sucker stock. It's really all about the future/potential. My interest was piqued by some of the fall from the Woodford debacle and one thing led to another. Biggest winner probably E-Therapeutics (LON:ETX).

Laughton

16th Feb '20

Thanks for the nudge for me to check on what I am paying for electricity however I found Good Energy to be nearly £100 per year more expensive than my current provider and having now used one of the comparison sites I have found another provider that is over £200 per year cheaper than Good Energy.

No, they're not backed by British Gas but they do claim to supply Green Electricity so I'm happy.

Small Cap Value Report (Fri 14 Feb 2020) - TRI, INDV,

Trifast (LON:TRI)

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Paul Scott

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